The Obama administration on Wednesday proposed a sweeping overhaul of federal regulation of US banking and financial services, a plan that was praised by insurance groups and state regulators for not including a proposal to establish a federal insurance regulator. Instead, the Obama administration has called for an Office of National Insurance within the Treasury Department that would monitor the industry and red-flag any exposures that could add to the threat of another financial crisis. Many multi-state insurers in the US have called for the creation of an optional federal charter to which they could submit rather than the patchwork system of individual state regulators. The current state system of regulation is favoured by smaller insurers and state regulators. Independent Insurance Agents & Brokers of America CEO Robert Rusbuldt was pleased that the Obama proposal “retains the current state regulatory system and does not directly call for the creation of a federal regulator”. The National Association of Insurance Commissioners said that the Obama proposal appeared to preserve “consumer protections and financial solvency oversight of the historically strong and solid system of state-based insurance regulation”. The Obama regulatory reform plan would empower the federal government to seize and wind down large financial companies, like AIG, that pose systemic risks; require large financial groups to adhere to stiffer capital and liquidity standards; increase the Federal Reserve’s oversight over financial institutions; give the Securities & Exchange Commission and the Commodity Futures Trading Commission more oversight of the derivatives market; establish a new national regulator for large financial institutions, eliminating the Office of Thrift Supervision; and establish a new consumer protection agency to oversee mortgages, credit cards and other products.

Former AIG boss Maurice “Hank” Greenberg said yesterday that his Starr International Co (SICO) transferred a large holding of AIG shares to Bermuda in September 2005 the day after AIG filed claims for the shares. In a second day of testimony in the AIG-SICO lawsuit over the shares, Mr Greenberg said that SICO’s voting shareholders, acting on the advice of counsel, asked JP Morgan Chase to release certificates for millions of AIG shares and ordered their transfer to Bermuda. Mr Greenberg also acknowledged to US District Judge Jed Rakoff, with the jury not present, that SICO moved the shares to prevent their being seized in lawsuits, calling the move “a reaction to the entire environment evolving between AIG, Starr International and some of the people involved. It began to get very ugly”. AIG attorney Ted Wells produced an internal SICO memo from July 2005 in which Mr Greenberg and other SICO shareholders restated the “ultimate purpose” of the company’s vast holdings of AIG shares to that of a charitable trust. SICO began amassing AIG shares in 1970 to create a fund that would serve as a deferred retirement plan for AIG executives. “SICO was not guaranteeing the plan would be there forever”, Mr Greenberg testified, noting that the plan was routinely reaffirmed every two years. In response to a question from Mr Wells, Mr Greenberg acknowledged that SICO did not inform participants in the retirement plan of the change in the fund’s purpose. “I don’t think we had an obligation to do that”, Mr Greenberg said. SICO restated the purpose of the share fund around two months after Mr Greenberg was forced from the helm at AIG amid state and federal probes into its accounting practices. Under other questioning by Mr Wells, Mr Greenberg said, “Yes, I was angry” about losing his job at AIG. AIG is seeking to recover $4.3bn that SICO allegedly realized in the sales of AIG shares and the return of another 185m AIG shares that are still in SICO’s control.

Robert Childs, chief underwriting officer at Bermuda-domiciled insurer Hiscox, has expressed bemusement at the fact that insurance rates are not rising significantly across all categories. Speaking at Insurance Day Summit Bermuda, Mr Childs said that part of the problem was a misunderstanding of the required combined ratio to generate appropriate returns. “The ambition of most insurance businesses is to have a combined ratio of 90% to 95%”, but felt that in the current financial environment this might not be the correct target. “We are still operating thinking that 90% to 95% is going to produce the result we want. But if we want to produce 15% ROE (return on equity), should we not be thinking that we should be looking for 80% combined ratios?” Mr Childs said that underwriters had had it drummed into them over time that 90% to 95% combined ratios were a good result, “but at the end of the year, if there is no investment income, there’s no bonus and that’s going to come as a bit of a shock”.

French insurer Mutuelle du Mans Assurances (MMA) has reported a net gain of €93m for FY2008, down from €253m the previous year. The company cited a severe fall in investment income as the cause. Turnover was relatively flat at €5.7bn, up a fraction of a per cent. There was a 9.3% fall in the life division, with turnover calling in line with the French market as a whole. Turnover in non-life rose 4.5% to €4.3bn, helped by gains in the home and health insurance divisions.